It's getting harder and harder to find bargain stocks today. The S&P 500 -- when including dividends -- has quadrupled since the nadir of the Great Recession in 2009. The past year alone has seen a jump of 27%, and analysts the world over are starting to wonder when the most recent "Trump Bump" will come to an end.
While there's no telling where the macroeconomic picture is headed in the short run, there are still deals to be had. You just need to know where to look. Today, you'll see why Ford (F 0.47%), CVS Health (CVS -1.62%), and Facebook (META 2.98%) are all bargain stocks you can buy today. And, no, the inclusion of Facebook is not a typo.
Image source: Getty Images.
Yes, Facebook is a bargain
Let's start with what is probably the most controversial of these three picks: Facebook. Yes, the stock is up almost 550% since mid-2012. No, it does not offer a dividend. And, yes, it is currently trading for 38 times earnings.
But I would argue that sometimes, we underpay for the world's greatest companies. I would say that Facebook probably deserves an even higher multiple, and that its stock is a bargain today.
The most important thing to recognize is that the stock has a huge moat. The network effect is one of the most powerful forces in business: with each additional person joining Facebook, Instagram, or WhatsApp, those who aren't registered on the platform are further incentivized to join.
It's a virtuous cycle that not only keeps the company's list of users growing, but allows for all of the content we get on Facebook to be provided for absolutely free. Think about that for a moment. Imagine if Netflix never had to pay a dime for its shows, original or otherwise.
Don't get me started on the room for growth internationally. While North America accounts for just 15% of all users, it contributes over half of the revenue. The average revenue per user in other parts of the world lag considerably.
Image source: Facebook.
North America might always be the biggest contributor, but that's OK. The others still have lots of room to mature. Developing economies are slowly but surely moving toward digital advertising as well. That kind of dynamic, coupled with the fact that it's a mission-driven organization, with a founder/CEO with tons of skin in the game, leads me to believe that today's price tag of just 25 times future earnings is very cheap.
If you're truly long term, Ford's dividend alone is worth the buy
Here's the long and short of what's happening with Ford right now. Since the Great Recession, the world has been on a car-buying spree that's helped the company's stock return over 600% -- including dividends -- since the nadir of 2008. But investors are worried that the cycle is turning against Ford, and that we'll soon see a lull in car buying.
That helps explain why the company's stock trades for just seven times earnings and free cash flow. Already, we're starting to see that some of those worries aren't completely unfounded: Sales have slowed in one of the company's biggest growth markets -- China -- and Ford has slowed production stateside.
But it's those very same production cuts that should be so encouraging. While Ford avoided government bailouts nine years ago, it was lack of fiscal restraint that led the entire industry to the brink. The company's decision to temporarily idle production at certain plants is the kind of decision that should keep the company, and its dividend, safe.
Speaking of the dividend, that's a huge reason to buy the company. While I'm not sure how much capital appreciation investors can expect from Ford stock, the role of the company's 4.8% dividend yield can't be overlooked. In fact, if we look at the last 30 years, Ford's stock has advanced 180% -- only 3.5% per year. But when we throw dividend reinvestment into the mix, the returns increase almost tenfold.
F Total Return Price data by YCharts.
Fellow Fool John Rosevear recently broke down how safe Ford's dividend is, considering how wonky the numbers can get because of the company's Ford Credit arm. His conclusion: "No company's dividend is ever 100% completely safe. But Ford shareholders need not lie awake at night worrying about theirs, even if the U.S. economy slips."
Don't forget this corner store-turned-health company
Finally, we have CVS. Most non-investors likely look at the company as a convenience store. But that overlooks a key business segment: prescription-drug fulfillment. Don't be misled -- this is big business.
Over the past year, two major pharmacy accounts -- Prime Therapeutics and Tricare -- decided to leave CVS in favor of Walgreens Boots Alliance. That helps explain why shares now trade for just 13 times earnings and only 10 times free cash flow.
Indeed, the immediate future could be painful for shareholders. The aforementioned defections plus uncertainty surrounding the future of the Affordable Care Act and drug prices in general -- under the Trump administration -- have management sounding cautious. Earnings are only expected to increase 4% next year, and free cash flow could fall as much as 25%.
But as with Ford, we can't ignore CVS' dividend. Currently yielding 2.6%, CVS should have no trouble paying it in the future. Over the past year, only 24% of free cash flow had to be used to pay the dividend. Even in a worst-case scenario for 2017, the dividend would only eat up 30% of free cash flow.
And this company is an absolute cash machine. Take a look at trends in both free cash flow and the growth of the company's dividend over time.
For long-term shareholders who want to buy in on a company experiencing short-term pain, I think CVS is a bargain today.
And lest you think I don't have skin in the game with any of these three bargains, Facebook is my second-largest holding personally, while CVS and Ford are both outperform picks on my CAPS profile, which you can see here.
